Caveat to the budget

2015-03-08 15:00

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The article, “What Nene doesn’t know” by Dewald van Rensburg (City Press, March 1 2015) refers.

In addition to raising revenue, the tax system can also be used to achieve public policy objectives through such measures as reduced tax rates and other incentives.

These measures are referred to as tax expenditures, so called because they result in lower tax revenue being collected.

How much revenue will be lost in the future is an estimate. Its realisation depends on a number of factors, primarily the behaviour of the targeted beneficiaries of tax expenditure, economic activity and the quality of the data about the specific sector of the economy to which a tax expenditure item may be targeted.

It is impossible to know all of these factors upfront. Hence, National Treasury has always published the tax-expenditure statement with the caveat that tax-expenditure estimates reported in the previous statements may have changed due tothe availability of updated data, assumptions and other corrections.

It is typical of the budget process that most numbers published will change when we print the next budget and thereafter.

This is the nature of forecasting, where we not only need to differentiate between forecasts at different times in the year, but also between planned numbers and their actual outcomes when the year ends.

In the case of the tax-expenditure numbers, this is even more so, as the numbers are dependent on progress made with regard to assessments completed – especially since different companies have different financial years.

In any case, the numbers queried are rather small relative tothe total tax revenue collected: more than R1?trillion.

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